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Spending on IT and business process outsourcing (BPO) by European organisations in the first three months of this year was down as the value of cloud services contracts fell.
According to the latest ISG figures for EMEA IT and BPO services contracts, total spending in the first quarter of 2023 was 5% down on last year, at $7.4bn.
ISG, which records all deals worth over $5m to calculate the total contract value for a period, revealed a 6% fall in cloud-based services spending to $3.7bn. Within cloud services, infrastructure as a service (IaaS) recorded a 10% decline in spending to $2.7bn, while organisations spent 6% more on software as a service (SaaS), which rose to just over $1bn.
Traditional IT outsourcing contracts, labelled “managed services” by ISG, were also down in the first three months compared with the same period last year. The total spent, $3.7bn, matched cloud spending, and although it was up from the previous quarter, it was 4% down on the corresponding quarter last year.
“The broader market in EMEA saw mixed results in the first quarter,” said Steve Hall, president, EMEA, at ISG. “The managed services market had a relatively stable performance in the first quarter, with [the value of contracts] up sequentially on strong restructuring activity and a record number of contracts awarded. Cloud services [total contract value], though, was down only for the second time year on year.”
In the UK, the biggest spending country in the region, organisations spent $1.2bn on IT and BPO services in the first quarter of 2023. This was 2% lower than the same quarter last year and a massive 36% down on the final quarter of 2022.
The DACH region, made up of Germany, Austria and Switzerland, spent $730m on IT and BPO services, 21% down on the same period last year.
The Southern Europe, Middle East and Africa region, which includes France, saw $1.2bn spent.
Last week, ISG reported a sharp drop in global spending on IT and BPO in the first quarter too, with $24bn spent, an 8% decrease from the same period last year.
Mirroring EMEA, global spending on cloud-based services was down during the first three months of this year, with ISG recording $14.3bn in total contract value, a 13% drop from the record high a year earlier. Meanwhile, more traditional IT services rose by 1% to $9bn.
ISG has lowered its forecast for cloud service spending in revenue growth in 2023. Hall said the fall in cloud contracts was expected to last through the second quarter, with demand picking up again in the second half.
“The macro environment remains uncertain, with interest rates, inflation and trouble in the banking sector topping concerns for enterprise clients,” said Hall. “There continues to be more scrutiny on deal signings, especially in discretionary spending areas. Enterprises are revisiting cost optimisation, efficiency gains and vendor consolidation deals.”
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